Reuters Surges as Reports Say Instinet IPO in the Pipeline

Shares of the communications giant have been clawing back from a 52-week low of 50 1/4 reached in September.
Author:
Publish date:

Shares of

Reuters Group PLC

(RTRSY)

surged Monday following reports that it was planning an initial public offering for

Instinet

, its electronic brokerage subsidiary.

London-based Reuters' American depositary receipts climbed 3 1/16, or 4%, to 81 13/16 in early afternoon trading. (Reuters finished up 2 3/4, or 3%, to 81 1/2.)

A spokesman for the communications giant said the reports, which first appeared in the

Sunday Times of London

, were "very speculative." He declined to comment on Reuters' specific plans for Instinet, except to say that the company would continue "looking to diversify its business."

Instinet controls about 15% of

Nasdaq's

volume.

The

Sunday Times of London

reported that Reuters was considering floating 25% of its holding in Instinet on the Nasdaq next year at a valuation of up to 3.5 billion pounds ($5.6 billion). The

Financial Times

said Monday that Instinet could be valued at up to 2.5 billion pounds.

Talk of an Instinet initial public offering drove Reuters' shares higher as investors recalled a wildly successful offering of another Reuters unit earlier this year, analysts said. Shares of

Tibco Software

(TIBX)

have more than quadrupled since Reuters took it public in July.

But analysts noted that they were skeptical about whether Instinet, which faces increased competition in the online trading sector, could or would follow in Tibco's footsteps.

"Tibco has a hugely successful business and they are at the front end of their growth curve," said Jim Dougherty, an analyst at

Prudential Securities

, who noted that Instinet was not so well positioned in its industry. Dougherty rates Reuters an accumulate and has not done any underwriting for the company.

Reuters shares have been clawing back from a 52-week low of 50 1/4 reached in September after concerns regarding Instinet's future performance sent the company's stock price tumbling. Disappointing third-quarter earnings also contributed to the shares' recent volatility.

Analysts have said they were concerned about Instinet's reliance on trading volumes to generate revenue. Growing competition from Internet trading companies has also raised questions about pricing pressure.

Investors' outlook on Instinet "pivots on whether Instinet is seen as a beneficiary or victim of the Internet -- that's unclear," said Mark Beilby, an analyst with

Deutsche Bank

in London.

Alex Brown

, which was acquired by Deutsche Bank, co-managed the Tibco offering.

Beilby, who rates Reuters a market performer, said he was waiting to see how and when Instinet would implement anticipated plans to offer trading in fixed-income securities, establish an online retail brokerage as well as expand its overseas operations.

Reuters is expected to release details of its corporate strategy, including its blueprint for Instinet, when it reports fourth-quarter earnings in February.